Self-catering industry lobbyists are encouraging the government to delay plans to abolish the furnished holiday lettings (FHL) tax regime.
Representatives from the Professional Association of Self-Caterers (PASC) and the Association of Scotland’s Self-Caterers (ASSC) met with Treasury officials this week to discuss the proposals, which were reintroduced by the new UK government in late July after originally being announced by former Chancellor Jeremy Hunt during the spring budget.
The key proposed changes include:
Relief for finance costs on FHLs (interest on loans and mortgages) being restricted to basic rate (20%) tax deduction only.
Capital allowances will no longer be available.
Capital gains tax reliefs will be removed.
FHL income will no longer be classed as relevant earnings when calculating pension tax relief.
It is proposed the new changes will take effect from April 2025 (tax year 2025/26).
Both PASC and the ASSC have said the changes would have a devastating impact on the self-catering industry, with PASC data suggesting 20% of operators would quit the sector, bringing particular harm to rural and coastal communities which rely on holiday lets to boost their economies.
During the meeting, PASC and the ASSC outlined the economic benefits delivered by the industry, plus the major differences between furnished holiday lets and the long-term lets sector, including the fact FHL businesses are responsible for council tax, business rates, and VAT, unlike long-term landlords.
PASC Chair, Alistair Handyside, said the meeting was more open and positive than expected, and lasted for 90 minutes, despite being scheduled for only half an hour.
“We had a really good discussion with the officials, who were clearly aware of the wider interventions in the sector,” said Handyside. “When we asked what the real purpose behind this was, they were clear that this is not part of a wider assault on the self-catering sector – it is still in their view a levelling up of tax allowances for property-based businesses.”
Handyside continued: “The door is open for additional meetings. Predicting any outcome is impossible at this stage. We are confident they will consider the measures we suggest, but this needs to be taken in context with the wider economic position. The removal of the winter fuel allowance was mentioned in the context of wider economic budgeting as a reason why any mitigations would be hard to come by.”
Fiona Campbell, CEO, ASSC, said: “FHLs are the bed stock of rural and coastal visitor economies. They are a longstanding economic lifeline for communities that face economic disadvantages. Forcing FHLs out of the rural and coastal tourism market will lead to job losses, business closures, and the loss of investment in local visitor economies. Abolishing capital allowances and full interest rate relief will stunt growth and reduce investment in rural and coastal areas. Forcing businesses to sell their holiday let properties will further hollow out rural and coastal communities.
“We welcome the opportunity to meet with Treasury officials to discuss the potential abolition of the FHL tax regime. This is causing real concern for operators throughout the UK, but particularly in Scotland due to the accumulated regulatory burden. The ASSC and our stakeholder partners from PASC briefed the Treasury on the salient issues, and we commit to maintaining this constructive dialogue to try and ensure a positive outcome for the sector.”
PASC and the ASSC are seeking a pause to the plans at a minimum.
Handyside added: “The process is simply too fast and not giving owners time to plan properly. No-one has done anything illegal – they signed up to an official tax regime, created by HMRC, and are not being given enough time or transitional support to move to another tax regime without facing considerable financial harm.”
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